Europe: Germany

The German chemical industry has an outstanding position
inside Europe. Nearly 25% of chemical product sales in the European Union (EU) are by German
chemical companies. Ranking behind China, the US and Japan,
Germany is the fourth largest chemical manufacturer worldwide.
Also, the chemical industry holds an eminent position within
Germanys overall economy. With more than 184 billion
Euros, the share of manufacturing industry sales by chemical
companies was well over 10%; thus, the German chemical industry
is ranked third among all manufacturing sectors, behind
automobile and machinery.

In recent years, German chemical companies successfully
increased their competitiveness with restructuring and
cost-cutting programs, as well as with innovative products and
technologies. This explains the strong rebound after the 2008
economic crisis. The long-term prospects for the industry are
favorable. Economic growth in all modern societies has always
been strongly connected to advances in chemistry and the
development of the chemical industry. The top challenges for
humanitye.g., renewable energies and raw materials,
growing population and clean waterrequire new solutions,
many of which can only be implemented through new materials,
substances and technologies provided by the chemical industry.
It is a true enabling industry and will keep this role in the
future.

Fig. 1. 2011 Growth
indicators for the German
chemical industries, %.

Business situation

The German chemical industry can look back on a successful
2011 financial year overall. Production increased by 2.2%,
prices rose by 5.2% and the turnover for the sector as a whole
rose by 7.7% to 184.2 billion Euros. These improvements also
had a knock-on effect on the labor market. The German chemical
industry employed around 12,000 additional people, which is a
3% increase for labor.

However, these figures cannot hide the fact that the
recovery has run out of steam, even in Germany. The sovereign
debt crisis in the US and Europe came to a head in the summer
of 2011. The US came close to insolvency because the debt
ceiling had been reached and the political maneuvering of both
political parties initially prevented it from being raised.

In Europe, it became clear that the measures already in
place were not enough to save Greece and other countries with
high debt levels from insolvency. In the second half of 2011,
economic growth continued to slow down. Research institutes and
international organizations, such as the International Monetary
Fund and the Organization for Economic Co-operation and
Development (OECD), reduced their growth forecasts. There were
renewed fears of recession. Citizens and companies alike were
plunged into uncertainty. The economic setbacks were felt early
on by the chemical industry. In Germany, chemical production
dropped from one quarter to the next. Even the Q4th of 2011
failed to bring the anticipated trend reversal.

Prices

Higher raw material costs in 2011 forced many companies to
raise the prices of their products. But there has been a slight
drop in raw material costs in the course of the present year.
With a slower demand, the upward trend of prices ended in the
Q4th. The average prices of chemicals and pharmaceuticals were
5.2% higher than they had been one year ago. Price increases
were recorded in almost all sectors. Only pharmaceutical prices
declined.

Sales and international trade

In 2011, total sales of the German chemical industry
increased by 7.7% to 184.2 billion euros. Business with
customers abroad developed somewhat more dynamically than
domestic business. Foreign sales of German chemical companies
rose by 8.8% to 108.9 billion. Domestic sales improved by
6% to 75.3 billion.

Exportscomprising foreign sales by German chemical
companies, re-exports and additionally chemical exports by
other industriesrose by 5.8% to 150.6 billion. Such
trends make Germany once again the world champion in chemical
export activities. Strongest growth rates were achieved in
business with Asia and South America. In addition, customers in
neighboring European countries increased their
orders with German chemical companies. As the business
situation of German industry stabilized, imports of chemical
products went up too: they totaled 108.7 billion and were
7% higher than last year. With almost 42 billion, German
chemical companies once more significantly contributed to the
export surplus of our country in 2011.

Employment

The good position of the chemical industry in 2011
positively impacted the labor market as well. Following a
period of not filling labor vacancies during the economic
crisis, German companies returned to hiring new staff. New
hiring is also be motivated by concern over the growing
shortage of qualified personnel. As a result, the number of
jobs in the German chemical industry rose by 3%. In total, the
German chemical industry had 427,000 staff in 2011.

Investment and R&D spending

With the fast recovery of the German chemical business, and
especially with high capacity utilization and the good earnings
situation, companies decided to forgo their reserved investment
attitude, a trend that continued in 2011. Since 2010, the
chemical industry invested some 5.8 billion in buildings
and plants; for 2011, we estimate investments to total roughly
6.4 billion. This corresponds to a 10% increase. But 2012
investment plans are more cautious. In view of a less favorable
economic environment situation and the
threatening energy costs, investment decisions are currently
being reconsidered.

According to VCI estimates, 2011 research spending for the
chemical-pharmaceutical industry increased by 6.5% against 2010
to well over 8.8 billion. Out of this total, more than
5 billion were spent by the pharmaceutical sector. This
high R&D spending pays off, as it keeps strengthening the
international competitiveness and the success of German
chemical companies.

Outlook

Since December 2011, conditions have been improving for the
German chemical industry. Confidence is gradually returning.
The financial situation appeared brighter, and the economic
prospects are now positive again. The trough appears to have
been reached in Q4 of 2011. In the coming months, a renewed
sense of buoyancy can be expected, although only time will tell
whether this confidence is justified. The economy is still in a
critical condition, and prudence is needed. The chemical
companies must, therefore, proceed with caution as there could
still be further setbacks ahead.

We are confident and expect to see a further slight increase
in production and turnover in 2012 compared to the previous
quarter. However, in comparison to the very good start to the
year in 2011, it is likely that we will experience a
substantial loss initially. Only as the year continues will the
growth rates move back into the black.

Our forecast for 2012 has to be set against this background.
German chemical production will remain at the level of the
previous year. We are not expecting to see any appreciable
growth this year. The price increases are slowing. This year,
chemicals and pharmaceuticals are likely to show price rises of
1%. The turnover of the sector as a whole is, therefore, also
expected to increase by 1% to a total of 186 billion.

After two years of substantial upsurge, the German chemical
industry will experience a pause in growth.

The industry must cope with this condition. The prospects
for 2013 appear to be more positive: Experts expect to see a
return to significant growth both in the GDP and in industrial
production. The chemical industry should be able to benefit
from this. As things currently stand, we can expect to see a 3%
growth in German chemical
production. HP

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